Q2 2024 Brinker International Inc Earnings Call

January 31, 2024

Operator: Thank you. At this time, we will be conducting a question-and-answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while asking your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality.

Operator: Please hold while we poll for questions. Your first question for today is coming from Jeff Farmer with Gordon. Good morning, guys. You mentioned weather, but any other drivers you can point to for the weaker January sector traffic trends? No, Jeff. It's Joe.

Joe: Good morning. We think weather is the biggest delta. Going into the weather, we were seeing results that were really meeting our expectations. So again, what was driving business coming out of the quarter seemed to have carried over into January, the biggest deltas. And, you know, it's a murky situation with the amount of weather that extended over really three and a half weeks. But again, as I said, I think the drivers are still pretty much intact.

Kevin: The weather impact is probably, you know, going to be in the 10 to 12 million dollar range for that quarter. Pretty significant because of the extent and the range of the weather impacted across the country. Yeah, I mean, the other thing that we look at, Jeff, just so you notice Kevin, is how we're doing versus the industry given that the industry also has the same weather. We look across a swath of different concepts, and it looks like the gains that we saw in Q2 are not changing. So we feel like, at least from a relative performance standpoint, it really is the weather versus anything that's happened in our. Okay, that's helpful. And just one more.

Speaker: You guys did touch on it, but could you just provide a little bit more color on the customer or consumer response to that? For example, the fourth flight of TV or national TV in January relative to what you saw with the first three flights. Is the consumer still responding sort of as aggressively as they were early on? Well, it's, you know, it's always tough to tease that out when you have the weather that we had in January. But, what I can tell you is we continue to see that expansion in both sales and traffic versus the industry, which would, you know, lead us to believe it has, it's having similar impacts. Obviously, you're not going to see the same burst that you saw in Q2, given what happened with the weather, right? But in terms of relative performance versus the industry, we've been very pleased with the advertising. Okay, thank you. Your next question is coming from Brian Vaccaro with Raymond. Hi, thanks, and good morning.

Speaker: Just back to the fiscal second quarter comps, and I wanted to dial in on the mix a little bit, if we could. Could you provide more color on what the mix of the 3 For Me platform was in the quarter compared to last? And are you seeing a higher preference for the 1099 price tier versus higher tiers? Yeah, and I'll start off, and then Mika can give you a little bit more granularity.

Speaker: So we saw about, you know, we keep quoting the percentage of checks on deals, and that had been going down steadily, and then it kind of flattened out over the last couple quarters. But we did see that tick up about two points. So the percentage of checks on deals went up from 29% the previous quarter to 31% this quarter. So we're seeing a little bit of a tick up there. And then within the tiers of 3 For Me, we're seeing a little bit more preference for 1099, but it still is a minority of checks that are purchased that are 3 For Me. So to answer your question very directly, Brian, it's like two points more on checks on deal, and then a slight more preference for 1099, but not anything really significant.

Mika: Okay, great. Thank you for that. Oh, go ahead, Mika.

Mika: Yeah, and just a detail on that. So our preference, we've always said it's kind of, you know, it always runs in the mid-teens. And it was because of the success of the second quarter that we did see it tick up to, you know, probably from about 14 to 15%. So we did have a little bump up there. Okay, great. Thank you for that.

Joe: And then, I guess as it relates to Joe, there was a question about January and the weather, and you sound like you're confident that it was the weather that disrupted things. So is it reasonable to assume you've seen some improvement as the weather's warmed up in certain pockets of the country here in the last week or so? Yeah, as you come out of the big weather swaths, this last really, five, six days, we've definitely seen a reversion back to, you know, some of the way the performance was looking prior to the weather. So that gives us some comfort.

Speaker: We, again, want to be cognizant and watch the consumer closely coming out of the holidays. We'll continue to do that as we move through the quarter. There is a feeling of a little bit more conservatism in the consumer, but we still have plenty of dollars out there to be captured. And when we see those gaps in the industry continue to grow, we think, again, that value-oriented consumer is gravitating toward us. Okay, great. And then just one more on advertising, if I could. In January, I believe the plan, as you had laid it out, was to run for four weeks, and I was curious if you altered that plan or adjusted weights in any way, or maybe it was too late to do that as the weather set in.

Speaker: And then could you also just talk about the TV plan for the rest of the fiscal year, any changes versus what you previously communicated? Thank you. Yeah, I can share my insight on that. Yeah, certainly, when you're talking about TV, it's much harder to get out of that quickly when you see the weather that's coming. Certainly, you can tailor back a little bit of digital, but the bulk of the spend is you're unable to pivot out. So that obviously would have been the thing to do if you had that kind of freedom.

Speaker: Going forward, we have about 11 weeks remaining in the advertising. So remember, we talked about 27 weeks for the total fiscal year. We have 11 weeks that we have not spent yet.

Speaker: The bulk of that will be in the months of March and May. And none of this has changed our plans, and we feel very confident about where we are. That's why we had the guidance that we gave, and we feel like we're going to continue making investments in the business to continue to accelerate what we're seeing in traffic and sales. All right, great.

Mike: And then on the dollars of ad spend, Mike, on the last call, you provided some helpful color on sort of what the dollar spend was in the quarter and how to layer that out just to set reasonable margin expectations. I don't know if you have that in front of you, but could you share that if you do? And that'll be it for me.

Speaker: Yeah, and so, they do, they do alter just a little bit as we move, and that, you know, it's a big ad spend. But for the third quarter, I would expect about a $20 million increase year-over-year in advertising. Thanks very much.

Speaker: You're welcome. Your next question is coming from Chris O'Cole with. Hi, good morning, guys. Kevin, the company mentioned slowing comps toward the end of the second quarter. Obviously, the weather impacted the start of the third quarter.

Kevin: So I guess I'm just curious, what gives you confidence to raise the total revenue guidance for the year? So let me just share with you how we're thinking about the business, and I'll let Mika chime in if there's any additional detail on the numbers that you want to give. So, number one, we haven't seen any material change in the operations of our business. And like the measures that we track internally, which we believe are key indicators of what will happen in the future, they continue to get better. So we didn't talk about it in the prepared comments, but things like food grade scores, server attendance scores, intent to return, they all continue to improve. And so that gives us confidence that the strategies that we put in place just continue to work. And so putting forward the advertising that continues to drive the business, we don't believe we'll have any, we won't see any different changes to the outcomes of the things that we're doing. So we feel very confident in the plans. You know, we don't look at the weather as a long-term thing.

Speaker: So certainly, we look at the measures of how we're doing versus the industry when we see an event like weather to make sure that the continued operational performance ahead of our industry peers is continuing to happen. And we're seeing that. So we don't, there's nothing that would tell us that anything operationally has changed in the business or that our strategy needs any kind of tweaking. I mean, the other thing that we haven't talked about is the success of the barbell strategy.

Speaker: So we've talked a little bit about the consumer pulling back who's coming in for three for me, but we're also seeing, you know, very healthy trends in the other areas. So that's really allowed us to continue with our margin improvement, even though, as you guys have seen, mixes pulled back a little bit. So we feel very confident about the operational metrics of the business. We don't think anything has changed from what we've been looking at, and that's why we're very confident about the balance of the year. Yeah. And Chris, this is Joe.

Joe: The change we made was raising the lower end of that guidance. I mean, again, we're continuing to outperform where we thought we would be from a top line perspective. We have much better insight into the ability to move the needle from an advertising perspective. So that gives us that 11 weeks that Kevin was talking about, and the sustainability of those sales that come out of those gives us a lot more confidence as we move our internal expectations up further in that original range. So it's really bringing the bottom up, basically sending the message that we're comfortable functioning at the middle to upper middle parts of that range as we kind of go forward. Okay, and then Joe, just as a follow-up question, was the EPS guidance increase a result of other line items besides just the revenue?

Joe: Yeah, it was really a great reflection on the margin improvements we're seeing. So again, sales leverage contributes to those margin improvements. So they are obviously directly tied together. But not only the ability to move revenues up and get that incremental sales leverage, but continuing to make some progress on further margin and expansion as we go into the rest of the year. Okay, I'll pass it on.

Speaker: Thank you. Your next question is coming from John Ivankoe with J-P-A-L-L-E-N-D-S-E-N-T-O-R-A-L-L-E-N-D-S-E-N-T-O-R-A-L-L-E-N-D-S-E-N-T-O-R-A-L-L-E- You know, as I hear about the effectiveness of advertising, and, you know, you're going to think I'm trying to be your CMO, you know, why not, you know, significantly increase your percentage of spend where you currently are? I mean, in the industry, at least it used to be, it was considered that you could get $2.5 of sales for every additional dollar of advertising. That's something, you know, that you would want to do.

John William Ivankoe: So, I guess, how far are we, you know, do you think in terms of, you know, just kind of getting back to that marginal level to where you're deciding, it's like, hey, additional advertising brings additional profitable sales versus not? I mean, if you were to completely clean slate, you know, 24, as maybe you can think about, you know, 25, what would that advertising be as a percentage of sales? Well, there's a, let me answer how we think about it.

Speaker: And then I'll let Mika talk about the actual percentage that you're asking for, John. So number one, we are making a pretty big bet on the increase in advertising. So you know, we did 20 incremental million last fiscal year. This year, it's more than 50 more million incremental on top of that. So, from my perspective, I feel like we've been moving very fast to reset demand creation in this business, and that can be point one. Number two, it takes some time to build the capability to do all these things, right?

Speaker: So obviously, we had to rebuild our TV capability, and we had to rebuild some of our insights capability. Now we're in the middle of rebuilding our CRM program to be much more effective and efficient. So these things take time. So even if I said, you know, our end game is to continue to move that higher in the next couple fiscal years, it takes time to build the capability to be able to effectively deploy those dollars. And so far, the team has done an excellent job. You know, George Felix and his team. I couldn't be more proud of them for how they continue to build our capabilities.

Speaker: And I think we've done a great job with TV, and now we're really focused on digital. And I would expect that to continue to ramp up as we continue to build that capability. So now to answer your question, John, is that we are spending significantly more and investing more in the business. But we also have to continue to build capability in order to effectively deploy those dollars. John, it's Mika.

Mika: So just to back that up, we really doubled our advertising as a percent of sales. So last year, we were, you know, about one and a half, and this year, we're just at 3%. So that's getting close to the pre-COVID level before we pull back on that.

Speaker: So the pieces are a little bit different, like Kevin said, but we're definitely going to continue to look at that line and invest where it makes sense. And did, Kevin, did I catch an illusion that, you know, that 25 kind of goes up as a percentage of sales again over 24? And, you know, and I guess it's maybe like the max limit, you know; I would have to go back and look from years ago. You know, I don't think many casual diners have ever spent above 4%, at least not materially more. Would that be, you know, kind of like the max limit of spend that you would imagine the brand getting to? Yeah, but I don't think we're close to that level yet.

Speaker: I mean, right now, we're not even focused on a ceiling; we're just focused on making sure the next dollar that we deploy has the return that we've seen in the previous dollars or better. So, you know, right now, the returns that we've been seeing in the traffic gains and, more importantly, that the traffic gains are more sustainable given the experience improvements give us confidence to continue to lean forward and invest. So the answer would be, yeah, we would expect us to invest more in 25. And, you know, what the ceiling is, I don't know. I don't think it's the number that you threw out there. I think it's probably less than that.

Speaker: But we'll continue to focus on are we getting the returns that we want from the deployed spend? Okay. All right. Perfect. And then, in terms of who was actually brought in?

Speaker: What was it a customer that was coming to Chili's, you know, during COVID or slightly after COVID and just not as often? And was it a completely lapsed customer? Was it a new customer? Or did I may have missed this.

Speaker: Do you have that level of intelligence in terms of who you're actually bringing into the door? Yeah, we don't yet. I mean, we have our data now tokenized, which we talked about, and we worked on during the last call. It's going to take another quarter to officially deploy that, and we will be able to have better answers to what you just asked. And we know, in general, that a younger customer is responding to the advertising. But we don't have the granularity that you just asked for, like how long they were last and when was the last time they ever visited Chili's. So hopefully, we'll have more information on that as we continue to build our CRM capability. And then, going forward, we'll just be building out those profiles more and more. We now have 18 months of prior data that's been tokenized, and then as we put that into the restaurants, we'll be able to start building out the profiles of all these guests to be able to answer your question with a lot more granularity. Sounds good. Thank you.

Presentation. It is now my pleasure to turn the floor over to your host Michael Ware, Vice President of Finance and Investor Relations Ma'am the floor is yours.

Thank you Holly and good morning, everyone and thank you for joining us joining us on today's call here with me today are Kevin Hochman, Our Chief Executive Officer, and President and Joe Taylor, Our Chief Financial Officer.

Results for our second quarter were released earlier this morning and are available on our website at Brinker Dot com as we always do Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions before beginning our comments I would like to remind everyone of our <unk>.

<unk> Harbor regarding forward looking statements during our call management may discuss certain items, which are not based entirely on historical facts.

Yeah.

Speaker Change: Good day and welcome to the Brinker International earnings call Q2 F 'twenty four.

Any such items should be considered forward looking statements with the meaning of the private Securities Litigation Reform Act of $19 95.

Speaker Change: At this time, all participants have been placed on a listen only mode. The floor will be open for questions and comments. Following the presentation. It is now my pleasure to turn the floor over to your host Michael Ware, Vice President of Finance and Investor Relations Ma'am the floor is yours.

All such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC and of course on the call. We may refer to certain non-GAAP financial measures that management uses in it.

Thank you Holly and good morning, everyone and thank you for joining us joining us on today's call.

Mika Ware: Here with me today are Kevin Hochman, our Chief Executive Officer, and President and Joe Taylor, Our Chief Financial Officer.

Review of the business and believes will provide insight into the company's ongoing operations and with that said I will turn the call over to Kevin. Thanks, Mike Good morning, everyone and thank you for joining us as we shared continued progress against our long term strategy Q2 marked another quarter of year over year improvement in the business.

Mika Ware: For our second quarter were released earlier this morning and are available on our website at Brinker Dot com as we always do Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions before beginning our comments I would like to remind everyone of our safe.

We delivered strong financial results, while continuing to grow share during the quarter with chili's, beating industry sales by 4% and traffic by 2%. It's another data point that gives us confidence the strategic choices, we've made to accelerate the business profitably our working our advertising strategy is driving guests in and the improvements we're making to the <unk>.

Mika Ware: Harbor regarding forward looking statements during our call management may discuss certain items, which are not based entirely on historical facts any such items should be considered forward looking statements with the meaning of the private Securities Litigation Reform Act of $19 95.

Guests and team member experiences are bringing guests back.

While we are still in the early innings of the strategic shifts we're pleased with the progress both in terms of the direction and the consistency of results.

Mika Ware: All such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC.

Now, let's start with the improvements to the guest experience, where our operations teams continue to make steady and sustained improvement simplification efforts as well as the changes to the labor model are working guests are telling us the food is more delicious and more consistent the service is more attentive in our restaurants are more welcoming which is leading to better overall experience.

Mika Ware: And of course on the call we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations and with that said I will turn the call over to Kevin. Thanks, Mike Good morning, everyone and thank you for joining us as we shared continued progress against.

Higher intent to return scores.

The main Kpis, our organization looks at on a daily basis to understand guest experience is just with a problem.

Our long term strategy.

Kevin Hochman: Q2 marked another quarter of year over year improvement in the business, we delivered strong financial results, while continuing to grow share during the quarter with chili's, beating industry sales by 4% and traffic by 2%. It's another data point that gives us confidence the strategic choices, we have made to accelerate the business profitably are working or advertise.

When we started this journey almost two years ago more than 5% of our dining guests reported problems with their experience.

Now this number is down to three 6%, which is a record low for our brand since we began tracking the metric the work that our chief operating officer, Doug Cummings and his field teams are leading is working to deliver sustainable improvements in the guest experience.

Kevin Hochman: <unk> strategy is driving guests in and the improvements, we're making to the guest and team member experiences are bringing guests back.

Now, let's talk about the progress, we're making with the team member experience.

Kevin Hochman: We are still in the early innings of these strategic shifts we're pleased with the progress both in terms of the direction and the consistency of results.

We know a better guest and team member experience starts with more stable management teams and we continue to make great progress. There are 12 months turnover improved another two points to 22% during the second quarter accelerating our outperformance on retention versus the industry, which puts us at the very top echelon of restaurants.

Kevin Hochman: Now, let's start with the improvements to the guest experience, where our operations teams continue to make steady and sustained improvement.

Kevin Hochman: <unk> efforts as well as the changes to the labor model are working guests are telling us the food is more delicious and more consistent the service is more attentive in our restaurants are more welcoming which is leading to better overall experience and higher intent to return scores.

We think three things are driving this improvement and managerial turnover.

The continued rollout of managers ideas on how to improve the team member and guest experience has them more engaged.

Kevin Hochman: The main Kpis, our organization looks at on a daily basis to understand guest experience as guests with a problem.

Those changes are in fact, making their jobs easier to make guests and team members feel special.

And third the sustained improvement in sales is making their jobs more rewarding with higher total compensation. Our managers are telling us their quality of life has significantly improved and in turn they are able to execute more consistently and focus on strengthening restaurant culture, which is leading to a better experience for their teams and our guests as a.

Kevin Hochman: When we started this journey almost two years ago more than 5% of our dining guests reported problems with their experience now. This number is down to three 6%, which is a record low for our brand since we began tracking the metric the work that our chief operating officer, Doug Cummings and his field teams are leading is working to deliver some.

Kevin Hochman: Stable improvements in the guest experience.

We're also now starting to make real inroads on hourly turnover, which improved again this quarter hourly turnover has been our operators obsession metric this fiscal year and their focus on hourly training and simplifying jobs has made a material impact on this kpis for the front half of our fiscal year now we still have upside to be in that upper echelon of.

Kevin Hochman: Now, let's talk about the progress, we're making with the team member experience.

Kevin Hochman: We know a better guest and team member experience starts with more stable management teams and we continue to make great progress. There are 12 months turnover improved another two points to 22% during the second quarter accelerating our outperformance on retention versus the industry, which puts us at the very top echelon of restaurants.

Restaurants on hourly turnover like we already are on managerial turnover, but based on the team member initiatives being worked on and I'm confident we'll make even more progress on the kpis in the back half of this fiscal.

Kevin Hochman: We think three things are driving this improvement and managerial turnover.

Kevin Hochman: The continued rollout of managers ideas on how to improve the team member and guest experience has them more engaged.

Now I'd like to talk a little bit about advertising and the positive impact it is having on our traffic.

Our advertising focus is on our unbeatable three for me value platform and Thats resonating with the consumer a high quality complete meal at a great value is winning with guests and when we turned this messaging on we are seeing noticeable lifts and traffic both versus our own run rates as well as versus the industry.

Kevin Hochman: Those changes are in fact, making their jobs easier to make guests and team members feel special.

Kevin Hochman: And third the sustained improvement in sales is making their jobs more rewarding with higher total compensation.

Kevin Hochman: Our managers are telling us their quality of life is significantly improved and in turn they are able to execute more consistently and focus on strengthening restaurant culture, which is leading to a better experience for their teams and their guests.

We are encouraged to see the campaign starting to build our longer term kpis to chili's unaided awareness, which is the ability for a consumer to recall the brand without the prompted advertising has increased 9% over the past year.

Kevin Hochman: As a result, we're also now starting to make real inroads on hourly turnover, which improved again this quarter hourly turnover has been our operators obsession metric this fiscal year and their focus on hourly training and simplifying jobs has made a material impact on this kpis for the front half of our fiscal year now, we still have upside to be in that upper.

So whats next in advertising testing new ways to talk about our offerings as well as bring new food news to the three for me platform to keep that messaging fresh for our customers.

Lastly, we're encouraged by how the improved dining experiences working in conjunction with the marketing.

Kevin Hochman: A lot of restaurants on hourly turnover like we already are on managerial turnover, but based on the team member initiatives being worked on and I'm confident we'll make even more progress on the kpis in the back half of this fiscal.

Compared to last year, when we were back on air we are now seeing more sustained business lifts post the advertising burst.

We drove positive traffic in October while we were on TV and we continued to beat the industry in traffic for the remainder of the quarter.

Kevin Hochman: Now I'd like to talk a little bit about advertising and the positive impact it is having on our traffic.

While we continue to improve overall traffic trends, we did see lower mix than prior quarters. Some of this was expected as we lapped. The October 22, 2022 menu changes that reduced the number of <unk> III for me offers.

Kevin Hochman: Our advertising focus is on our unbeatable three for me value platform and Thats resonating with the consumer a high quality complete meal at a great value is winning with guests and when we turned this messaging on we are seeing noticeable lift in traffic both versus our own run rates as well as versus the industry.

The unexpected mixed decline most of that was self inflicted the good news is we now know and understand the wise and changes are underway to reverse some of the impacts that we've seen on mix.

Kevin Hochman: We are encouraged to see the campaign starting to build our longer term kpis to chili's unaided awareness, which is the ability for a consumer to recall the brit without the prompted advertising has increased 9% over the past year.

There are two key factors contributing to lower mix. The first is menu merchandising our strategy to merchandize wings in case it does as appetizers on our August venue effectively significantly drove those items.

Kevin Hochman: So whats next in advertising testing new ways to talk about our offerings as well as bring new food news to the three for me platform to keep that messaging fresh for our customers.

We believe that strategy will drive significant incremental <unk> through attachment.

But it drove more trade denim, we expected because some guests order. These items as they are entrees, we dropped a new menu yesterday that we believe will help reverse some of this negative mixed trend, we adjusted our menu merchandising to deemphasize. These items and included additional opportunities for trade up.

Kevin Hochman: Lastly, we're encouraged by how the improved dining experiences working in conjunction with the marketing.

Kevin Hochman: Compared to last year, when we were back on air we are now seeing more sustained business lifts post the advertising burst.

We drove positive traffic in October while we were on TV and we continued to beat the industry in traffic for the remainder of the quarter.

The other factor that impacted mixed during the quarter was our decision to stay with three or four me messaging, which is clearly resonating in driving incremental traffic, but we did see a lower level of add ons alcohol and trade up versus previous advertising ways, indicating we may be seeing a more conservative consumer we expect maintaining leadership value on air will continue.

Kevin Hochman: While we continue to improve overall traffic trends, we did see lower mix than prior quarters. Some of this was expected as we lap. The October 22, 2022 menu changes that reduced the number of <unk> for me offers.

Kevin Hochman: The unexpected mixed decline most of that was self inflicted the good news is we now know and understand the wise and changes are underway to reverse some of the impacts that we've seen on mix.

To drive Chili's growing sales and traffic share, but we might see some softening in mix given where the consumer is.

Now, let's talk about <unk> I want to congratulate the <unk> team for a strong holiday in Q2, they delivered six 7% sales growth, which was 4% better than the industry, coupled with an impressive 300 basis point improvement in margins.

Kevin Hochman: There are two key factors contributing to lower mix. The first is menu merchandising our strategy Gina merchandize wings in case of D. As appetizers on our August venue effectively significantly drove those items.

We continue to be pleased with the strength of <unk> business and I'm very excited to welcome our new <unk> President who I believe is the perfect leader to accelerate the brand's dining and off premise and banquet growth Dominic <unk> is a highly respected food and beverage executive who spent more than 20 years with MGM resorts international progressing from leading highly regarded rescue.

Kevin Hochman: We believe that strategy will drive significant incremental <unk> through attachment.

But it drove more trade down than we expected because some guests order these items as they are entrees we.

We dropped a new menu yesterday that we believe will help reverse some of this negative mix trend, we adjusted the menu merchandising to deemphasize. These items and included additional opportunities for trade up.

Just like with search to serving as the senior Vice President of food and beverage strategy all of MGM, where he led more than 18000 employees and drove more than $2 billion in sales Dominic and the team are quickly working to develop a strategy to elevate the <unk> experience and ended the <unk> differentiated brand and improve the brand's four wall economics and.

Kevin Hochman: The other factor that impacted mixed during the quarter was our decision to stay with three or four mean messaging, which is clearly resonating in driving incremental traffic, but we did see a lower level of add ons alcohol and trade up versus previous advertising ways, indicating we may be seeing a more conservative consumer we expect maintaining leadership value on air will continue.

Similarly accelerate <unk> growth.

I look forward to sharing the team's progress in the coming quarters.

Kevin Hochman: To drive Chili's growing sales and traffic share, but we might see some softening in mix given where the consumer is.

In summary, we've had another solid quarter progressing the strategy both in operational improvements in financial performance Chili's value messages driving trial are improving experiences is driving frequency and we continue to drive innovation to keep our food and beverage platforms fresh we feel good about the progression of our strategy and believe both our brands are well positioned.

Kevin Hochman: Now, let's talk about mining.

<unk> as we move through the back half of the fiscal year now I'll hand, the call over to Joe to walk you through the quarter in more detail go ahead Joe.

Hey, Thanks, Kevin and good morning, everyone second quarter operating results reported this morning represent a very solid quarter of continued growth in the business driven by higher top line sales and improve margins as we have previously indicated our strategy is designed to meaningfully improve the traffic dynamics of our brands through a better guest experience and effective <unk>.

Getting efforts. Additionally, we are looking to steadily improve margins, while making the necessary operating investments into the restaurants to support sustainable growth. Our strong performance in the second quarter is good indication, we are making progress in all of these key areas.

The specific results for the second quarter of fiscal year 'twenty for Brinker reported total revenues of $1 $74 million up five 4% from prior year.

And improved restaurant operating margin of 13, 1% and adjusted diluted earnings of <unk> 99 per share a 30% increase versus prior year.

At the brand level Chili's posted comp store sales of 5% for the quarter, while Marciano recorded a comp sales gain of six 7% both brands nicely hurdle strong quarters from the prior year.

While overall comp sales met our expectations for the quarter. The component makeup of the sales did take on a different stack, while price was as expected, we didnt experienced higher traffic and lower mix versus our expectations chip.

Chili's reported traffic of negative <unk>, 6%, we are still experiencing the year over year impact of the planned de emphasis of virtual brands, including the discontinuation of Marsh Anna's Italian classics and materially reduced promotional activity for its just wings.

In the second quarter reduced virtual brand activity negatively impacted chili's traffic by approximately two 5%.

Excluding the traffic decline from virtual brands Chili's base business traffic for the quarter was a positive one 9% a great indication of the traffic driving aspects of our strategy are resonating and attracting many new guests.

Marciano is also delivered a solid second quarter fueled by a strong holiday season. The brand reported positive sales of six 7% driven by 10, 5% price.

4% mix, partially offset by negative four 2% traffic.

Overall, the <unk> business is moving in the right direction with positive traffic in dining rooms, and banquets. The two most profitable channels of the model.

Now turning to our strengthening restaurant margins.

Our restaurant operating margin for the second quarter was 13, 1% an increase of 150 basis points year over year.

Sales leverage from top line growth cost of sales moderation and effective cost management by our operators were the primary factors driving the improvement there.

Particularly encouraged by our strengthening margins in the context of also being able to make meaningful operating investments in the important areas of labor R&M and marketing.

These label levels of investment will help build and sustain our business model as we move forward.

I would mention a couple of underlying specifics within the various areas of restaurant level margin.

Two 5% price.

Food and beverage costs were materially improved from the prior year, notably in key areas, such as poultry ground beef and oils.

4% mix, partially offset by negative four 2% traffic.

Overall, the <unk> business is moving in the right direction with positive traffic in dining rooms, and banquets. The two most profitable channels of the model.

From a labor perspective, we continue to experience wage rate gains in the mid single digit range. In addition to the hours, we invested into the labor model.

Now turning to our strengthening restaurant margins.

And restaurant expense was impacted by the investments in marketing and repair and maintenance maintenance expense.

Our restaurant operating margin for the second quarter was 13, 1% an increase of 150 basis points year over year.

And the benefit from sales leverage and cost effective management and other expense lines.

Sales leverage from top line growth cost of sales moderation and effective cost management by our operators were the primary factors driving the improvement.

Improved restaurant and operating margin supported growth in our quarterly EBITDA with this important earnings measure measure, reaching $107 million, an 18% increase from the second quarter of last fiscal year.

We are particularly encouraged by our strengthening margins in the context of also being able to make meaningful operating investments in the important areas of labor R&M and marketing. These label levels of investment will help build and sustain our business model as we move forward.

The improved operating performance also led to incremental capital deployment in key areas of our capital allocation strategy.

During the quarter Chili's completed and opened five new restaurants, all of which are off to an excellent starts.

It was mentioned a couple of underlying specifics within the various areas of restaurant level margin food and beverage costs were materially improved from the prior year, notably in key areas, such as poultry ground beef and oils.

Approximately $31 million were invested into our existing fleet in the form of R&M and re image work.

Importantly, we repaid $39 million of outstanding.

<unk> credit borrowings as part of our ongoing efforts to strengthen the balance sheet and lower leverage ratios, our total debt to EBITDA ratio reduced to two one times at quarter end.

From a labor perspective, we continue to experience wage rate gains in the mid single digit range. In addition to the hours, we invested into the labor model and.

Restaurant expense was impacted by the investments in marketing and repair and maintenance maintenance expense beyond the benefit from sales leverage and cost effective management and other expense lines.

In this morning's press release, we updated two key pieces of our annual guidance.

<unk> annual total revenues for the current fiscal year are now expected to be in the range of $4 3 billion to.

To $435 billion.

Our adjusted earnings per share is now expected to be in the range of $3 45.

<unk> to $3 70.

The improved operating performance also led to incremental capital deployment in key areas of our capital allocation strategy.

Our existing guidance for weighted average shares and annual capital expenditures were also reiterated.

While we don't provide specific quarterly guidance I would comment that the January period, we are ending today as experienced particularly tough and continuous weather issues across a broad swath of the country.

During the quarter Chili's completed and opened five new restaurants, all of which are off to an excellent starts.

Approximately $31 million were invested into our existing fleet in the form of R&M and re image work.

Our updated guidance does include an estimate of the negative impacts from the January weather with the understanding that third quarter results will be particularly impacted by the tough start to the quarter.

Importantly, we repaid $39 million of outstanding.

<unk> credit borrowings as part of our ongoing efforts to strengthen the balance sheet and lower leverage ratios.

Apart from the weather impact we continue to believe the critical drivers of our improving performance remain intact.

Our total debt to EBITDA ratio reduced to two one times at quarter end.

In this morning's press release, we updated two key pieces of our annual guidance.

We now move into the second half of our fiscal year, we remain committed to the strategies that are positively impacting the performance of our brands.

<unk> annual total revenues for the current fiscal year are now expected to be in the range of $4 3 billion to $4 three $5 billion.

<unk> are responding to the improved experience they receive in the restaurants, our marketing presence is breaking through and highly effective ways and our key investments both from an operational and capital perspective are coming together to enhance the sustainability of our efforts. We look forward to continuing to highlight our progress in the coming quarters.

Our adjusted earnings per share is now expected to be in the range of $3 45.

To $3 70.

Our existing guidance for weighted average shares and annual capital expenditures were also reiterated.

<unk>.

And with our comments now complete let me turn the call back over to Holli to moderate our Q&A.

While we don't provide specific quarterly guidance I would comment that the January period, we are ending today has experienced particularly tough and continuous weather issues across a broad swath of the country.

Thank you at this time, we will be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.

We ask that while posing your question you. Please pickup your handset is listening on speaker phone to provide optimum sound quality. Please.

Apart from the weather impact we continue to believe the critical drivers of our improving performance remain intact.

Please hold while we poll for questions.

Okay.

Your first question for today is coming from Jeff Farmer with Gordon Haskett.

We now move into the second half of our fiscal year, we remain committed to the strategies that are positively impacting the performance of our brands.

Good morning, guys.

You mentioned weather, but any other drivers you can point to for the weaker January sector traffic trends.

Guests are responding to the improved experience they receive in the restaurants, our marketing presence is breaking through and highly effective ways and our key investments both from an operational and capital perspective are coming together to enhance the sustainability of our efforts. We look forward to continuing to highlight our progress in the coming quarters.

I know, Jeff, it's Joe and good morning.

We think whether it's the biggest delta going into the weather. We were seeing results that were really meeting our expectations. So again.

What was driving the business coming out of the quarter seemed to have carried over into January the biggest delta is in.

<unk>.

And with our comments now complete let me turn the call back over to Holli to moderate our Q&A.

It's a murky situation with the amount of weather that extended over really three five weeks, but again as I said I think the drivers are still pretty much intact.

Thank you at this time, we will be conducting a question and answer session.

Weather impact is probably going to really be in the $10 million to $12 million range for that quarter, So pretty significant.

Speaker Change: You have any questions or comments. Please press star one on your phone at this time.

Speaker Change: We ask that we're posing your question you. Please pickup your handset is listening on speaker phone to provide optimum sound quality. Please.

Because of the extent and the range is the weather impacted across the country.

The thing that we look at Jeff just so you know it's Kevin is we look at how we're doing versus the industry given the industry also has the same weather.

Speaker Change: Please hold while we poll for questions.

Speaker Change: Okay.

Speaker Change: Your first question for today is coming from Jeff Farmer with Gordon Haskett.

Across a swath of different concepts in.

Jeff D. Farmer: Good morning, guys.

It looks like the gains that we saw in Q2, they are not changing so we feel like at least from a relative performance standpoint. It really is the weather versus anything that's happened in our business. Okay. That's helpful and just one more you guys did touch on it but could you just provide a little bit more color on the customer or consumer response to that.

Jeff D. Farmer: You mentioned weather, but any other drivers you can point to for the weaker January sector traffic trends.

Mika Ware: No Jeff this Joe and good morning.

Mika Ware: We think whether it's the biggest delta going into the weather. We were seeing results that were really meeting our expectations. So again.

For flight of TV or National television in January relative to what you saw with the first three flights as a consumer still.

Mika Ware: What was driving the business coming out of the quarter seemed to have carried over into January.

Mika Ware: Biggest delta is in.

It's a murky situation with the amount of weather that extended over really three five weeks, but again as I said I think the drivers are still pretty much intact.

Responding to.

Sort of as aggressively as they were early on.

Well, it's always tough to tease that out when you have the weather that we had in January what I can tell you is we continue to see that.

Mika Ware: Weather impact is probably going to really be in the $10 million to $12 million range for that quarter, So pretty significant.

That expansion on both sales and traffic versus the industry, which will lead us to believe it has is having similar impacts.

Mika Ware: Because of the extent and the range is the weather impacted across the country.

Obviously, youre not going to see the same burst that you saw in Q2, given what's happened with the weather right, but in terms of relative performance versus the industry. We've been very pleased with the advertising.

Mika Ware: Other thing that we look at Jeff just so you know it's Kevin is we look at how we're doing versus the industry given the industry also has the same weather.

Okay. Thank you.

Mika Ware: Really across a swath of different concepts in.

Okay.

Mika Ware: It looks like the gains that we saw in Q2, they are not changing so we feel like at least from a relative performance standpoint. It really is the weather versus anything that's happened in our business. Okay. That's helpful and just one more you guys did touch on it but could you just provide a little bit more color on the customer or consumer response to that.

Your next question is coming from Brian Vaccaro with Raymond James.

Alright, Thanks, and good morning, just on back to the fiscal second quarter comps and I wanted to dial in on the mix a little bit if we could.

Could you provide more color on what the mix of the three for me platform was in the quarter compared to last and are you seeing a higher preference for the $10 99 price tier versus higher tiers.

Fourth flight of TV or National television in January relative to what you saw with the first three flights as a consumer still.

Yes, I'll start off and then Mike I can give you a little bit more granularity. So we saw about.

Kevin Hochman: Responding to.

Kevin Hochman: Sort of as aggressively as they were early on.

Kevin Hochman: Well, it's always tough to tease that out when you have the weather that we had in January what I can tell you is we continue to see that.

Quoting the percentage of checks on deal and that had been going down steadily and then it kind of flattened out over the last couple of quarters, we did see that tick up about two points.

Kevin Hochman: That expansion on both sales and traffic versus the industry, which will lead us to believe it has is having similar impacts.

So the percentage of checks on deal went up.

From <unk>.

Kevin Hochman: Obviously, youre not going to see the same burst that you saw in Q2, given what happened with the weather right, but in terms of relative performance versus the industry. We've been very pleased with the advertising.

29% the previous quarter to 31% this quarter. So we're seeing a little bit of a tick up there.

And then within the tiers of three for me, we're seeing a little bit more preference on tech 99, but it still is the minority of.

Speaker Change: Okay. Thank you.

Speaker Change: Okay.

Of the checks that are purchased three for me are still at.

Speaker Change: Your next question is coming from Brian Vaccaro with Raymond James.

That's a 14 $99 $6 99 tier so to answer your question very directly Brian it's like two points more on checks on deal and.

Brian M. Vaccaro: Alright, Thanks, and good morning, just on back to the fiscal second quarter comps and I Wonder if the dialogue on the mix a little bit if we could.

And then a slight more preference to 10 99, but not anything really significant.

Speaker Change: Could you provide more color on what the mix of the three for me platform was in the quarter compared to last and are you seeing a higher preference for the $10 99 price tier versus higher tiers.

Okay, great. Thank you for that I'll go ahead Michael.

Yes, and just a detail on that so our preference. We've always said, it's kind of it always runs in that mid teens.

Doug Cummings: Yes, I'll start off and then maybe I can give you a little bit more granularity. So we saw about.

It was.

Because of the success of the second quarter, we did see it tick up.

Probably from about 14% to 15% that we did have a little tick up there.

Doug Cummings: Quoting the percentage of checks on deal and that had been going down steadily and then it kind of flattened out over the last couple of quarters, we did see that tick up about two points.

Okay, great. Thank you for that and then I guess as it relates to.

Doug Cummings: So the percentage of checks on deal went up.

There was a question about January and the weather and it sounds like you're confident that it was weather that disrupted things. So is it reasonable to assume.

Kevin Hochman: From <unk>.

Kevin Hochman: 29% the previous quarter to 31% this quarter. So we're seeing a little bit of a tick up there.

You've seen some improvement as the weather's warmed up in certain pockets of the country here in the last week or so.

Kevin Hochman: And then within the tiers of three for me, we're seeing a little bit more preference on tech 99, but it still is the minority of.

Yes.

Kevin Hochman: Of the checks that are purchased three for me are still at.

You've come out of the big weather swaps this last really.

Kevin Hochman: That's a 14 $99 $6 99 tier so to answer your question very directly Brian it's like two points more on checks on deal.

Six days, we've definitely seen a reversion back to.

Some of the way the performance is looking prior to the weather so that gives us some comfort.

Kevin Hochman: And then a slight more preference to 10 99, but not anything really significant.

Again, we want to be cognizant and watch the consumer closely coming out of the holidays, we'll continue to do that as we move through the quarter.

Speaker Change: Okay, great. Thank you for that I'll go ahead Michael.

There is a feeling of a little bit more conservatism.

Mika Ware: Yeah, and just a detail on that so our preference. We've always said, it's kind of you know it always runs in that mid teens.

The consumer but still have plenty of dollars out there to be captured.

Kevin Hochman: It was.

Kevin Hochman: Because of the success of the second quarter, we did see it tick up.

And when we see those gaps to the industry continue to.

To grow and we think again that value oriented consumer consumers gravitating our direction.

Kevin Hochman: Probably from about 14% to 15% that we did have a little tick up there.

Speaker Change: Okay, great. Thank you for that and then I guess as it relates to.

Okay, Great and then just one more on advertising if I could.

There was a question about January and the weather and it sounds like you're confident that it was weather that disrupted things. So is it reasonable to assume.

In January I believe the plan is you had laid out was to run four weeks and I was curious if you if you altered that plan or adjusted weight in any way or maybe it was too late to do that as the weather set in and then could you also just talk about the TV plan for the rest of the fiscal year any changes versus what you've previously communicated.

Kevin Hochman: You've seen some improvement as the weather's warmed up in certain pockets of the country here in the last week or so.

Kevin Hochman: Yes.

Kevin Hochman: You've come out of the big weather swaps this last really.

Thank you, yeah, I could share it and I can share the insight on that yes, certainly when.

Kevin Hochman: Six days, we've definitely seen a reversion back to.

When you're talking about TV, it's much harder to get out of that quickly when you see the weather that's coming.

Kevin Hochman: Some of the way the performance is looking prior to the weather so that gives us some comfort.

You can tell it back a little bit of digital but the bulk of the spend is unable to pivot out. So that obviously would have been the the thing to do if you had that kind of freedom.

Kevin Hochman: Again, we want to be cognizant and watch the consumer closely coming out of the holidays, we'll continue to do that as we move through the quarter.

Going forward, we have about 11 weeks remaining in the advertising so remember we talked about.

There is a feeling of a little bit more conservatism.

Kevin Hochman: In the consumer, but still have plenty of dollars out there to be captured.

About 27 weeks for the total fiscal year, we have 11 weeks that we have not spent yet the bulk of that will be in the months of March and may.

And when we see those gaps to the industry continue to.

Kevin Hochman: To grow we think again that value oriented consumer consumers gravitating our direction.

And.

None of this has changed our plans and we feel very confident about.

Speaker Change: Okay, Great and then just one more on advertising if I could.

Where we are that's why we had the guidance that we gave and we feel like we're going to continue to make investments into the business to continue to accelerate what we're seeing in traffic and sales.

Speaker Change: In January I believe the plan is you had laid out was to run four weeks and I was curious if you if you altered that plan or adjusted weight in any way or maybe it was too late to do that as the weather set in and then could you also just talk about the TV plan for the rest of the fiscal year any changes versus what you've previously communicated.

Alright, great and then on the dollars of AD spend Mike on the last call you provided some helpful color on sort of what the dollar spend was in the quarter and how to layer that out just to set reasonable margin expectation and I don't know if you have that in front of you, but could you share that if you do.

Speaker Change: Thank you, yeah, I could share it and I can share the insight on that yes, certainly when.

That'll be it for me thank you.

Yes.

They do alter just a little bit as we move in that it's a big AD spend but for the third quarter I would expect about a $20 million increase year over year in advertising spend.

Kevin Hochman: When you're talking about TV, it's much harder to get out of that quickly when you see the weather that's coming.

Kevin Hochman: You can tell it back a little bit of digital but the bulk of the spend is unable to pivot out. So that obviously would have been the the thing to do if you had that kind of freedom.

Yeah.

Thanks very much.

Kevin Hochman: Going forward, we have about 11 weeks remaining in the advertising so remember we talked about.

Youre welcome.

Yes.

Your next question is coming from Chris <unk>.

With Stifel.

About 27 weeks for the total fiscal year, we have 11 weeks that we have not spent yet the bulk of that will be in the months of March and may.

Hi, good morning, guys.

Kevin.

<unk> mentioned, the slowing comps towards the end of the second quarter, obviously, the weather impacted the start of the third quarter. So I guess I'm just curious what gives you confidence to raise the total revenue guidance for the year.

Kevin Hochman: And.

Kevin Hochman: None of this has changed our plans and we feel very confident about.

So.

Let me just share with you how we're thinking about the business and I'll, let Mike chime in if there is any additional <unk>.

Speaker Change: Alright, great and then on the dollars of that spend Mike on the last call. You provided some helpful color on sort of what the dollar spend was in the quarter and how to layer that out just to set reasonable margin expectation and I don't know if you have that in front of you, but could you share that if you do.

Detail of the numbers that you want to give so number one we haven't seen any material change in the operations of our business like the measures that we track internally, which we believe are key indicators of what will happen in the future. They continue to get better. So we didn't talk about it in the prepared comments, but things like food grade scores of our tentative scores intent to return.

Speaker Change: That'll be it for me thank you.

And they do they do alter just a little bit as we move in that it's a big AD spend but for the third quarter I would expect about a $20 million increase year over year in advertising spend.

All continued to improve and so that gives us confidence that the strategies that we put in place just continue to work and so.

Putting putting forward the advertising to continue to drive the business. We don't believe we'll have any.

Speaker Change: Thanks very much.

Speaker Change: Youre welcome.

Speaker Change: Yes.

We won't see any different changes to the outcomes of the things that we're doing so we feel very confident in the plans.

Speaker Change: Your next question is coming from Chris <unk> with Stifel.

Chris: Hi, good morning, guys.

We don't look at the weather.

Chris: Kevin The company mentioned, the slowing comps towards the end of the second quarter, obviously, the weather impacted the start of the third quarter. So I guess I'm just curious what gives you confidence to raise the total revenue guidance for the year.

Being a long term thing so.

We look at the measures of how we're doing versus the industry. When we see an event like whether to make sure that the continued operational performance ahead of our industry peers is continuing to happen and we're seeing that so we don't there's nothing that would tell us that anything operationally has changed in the business or that our strategy needs any kind of tweaking I mean, the other thing that we haven't talked about is the.

Kevin Hochman: So.

Speaker Change: Let me just share with you how we're thinking about the business and I'll, let Michael chime in if there is any additional <unk>.

<unk> of the barbell strategy, so we've talked a little bit about the consumer pulling back is coming in for three for me.

Speaker Change: Detail on the numbers that you want to give so number one we haven't seen any material change in the operations of our business like the measures that we track internally, which we believe are key indicators of what will happen in the future. They continue to get better. So we didn't talk about it in the prepared comments, but things like food grade scores are very tentative scores intent to return.

But we're also seeing very healthy trends in the other areas. So.

That's really allowed us to continue our margin improvement, even though as you guys have seen mix has pulled back a little bit. So we feel very confident about the operational metrics of the business. We don't think anything has changed from what we've been looking at and that's why we're very confident in the balance of the year, Yes, and Chris This is Joe.

Speaker Change: All continued to improve and so that gives us confidence that the strategies that we put in place just continue to work and so.

The change we made was raising the lower end of that guidance.

Speaker Change: Putting putting forward the advertising to continue to drive the business. We don't believe we'll have any.

I mean again, we're we're continuing to outperform where we thought we would be from a topline perspective, we have much better insight to the.

Speaker Change: We won't see any different changes to the outcomes of the things that we're doing so we feel very confident in the plans.

We don't look at the weather.

Our ability to move the needle from an advertising perspective, so that gives us that 11 weeks that Kevin.

Speaker Change: Being a long term thing so.

Speaker Change: We look at the measures of how we're doing versus the industry. When we see an event like whether to make sure that the continued operational performance ahead of our industry peers is continuing to happen and we're seeing that so we don't there's nothing that would tell us that anything operationally has changed in the business or that our strategy needs any kind of tweaking I mean, the other thing that we haven't talked about is the.

I was talking in the sustainability of those sales that come out of those and it gives us a lot more confidence.

As we move our internal expectations up further in that original range. So it's really bringing the bottom up.

Basically sending the message that we're comfortable at functioning at the middle to upper middle parts of that that range as we kind of go forward.

Speaker Change: <unk> of the barbell strategy, so we've talked a little bit about the consumer pulling back is coming in for three for me.

Okay, and then Joe just as a follow up was the EPS guidance increase.

Speaker Change: But we're also seeing very healthy trends in the other areas. So.

As a result of.

Speaker Change: That's really allowed us to continue our margin improvement, even though as you guys have seen mix has pulled back a little bit. So we feel very confident about the operational metrics of the business. We don't think anything has changed from what we've been looking at and that's why we're very confident in the balance of the year, Yes, Chris This is Joe.

Of other line items, Besides just the revenue.

Yes, it was really.

A great reflection on the margin improvements, we're seeing so again sales leveraged contributes to those margin improvements. So they are obviously directly tied together so.

Joe Taylor: The change we made was raising the lower end of that guidance.

Not only the ability to move the revenues up and get that incremental sales lever, but continuing to make some progress on <unk>.

Joe Taylor: I mean again, we're we're continuing to outperform where we thought we would be from a topline perspective, we have much better insight to the.

Further modest margin expansion as we go into the rest of the year.

Joe Taylor: The ability to move the needle from an advertising perspective, so that gives us that 11 weeks that Kevin.

Okay I'll pass it on thanks.

Your next question is coming from John <unk> with J P. Morgan.

I was talking in the sustainability of those sales that come out of those gives us a lot more confidence.

Hi.

As you hear about the effectiveness of advertising and Youre going to think I'm trying to be your CMO.

Joe Taylor: As we move our internal expectations up further in that original range. So it's really bringing the bottom up.

Yes.

Joe Taylor: Basically sending the message that we're comfortable at functioning at the middle to upper middle parts of that that range as we kind of go forward.

Why not significantly increase.

<unk> of spend where you currently are I mean, if the industry may at least it used to be those consider that you could get to $5 of sales for every additional dollar of advertising that's something.

Okay, and then Joe just as a follow up was the EPS guidance increase.

Speaker Change: As a result of.

That you would want to do so I guess, how far are we.

Speaker Change: Of other line items, Besides just the revenue.

Do you think in terms of just kind of getting back to that margin level to where youre deciding is like hey, additional advertising brings additional profitable sales versus not I mean, if you were to completely clean slate 'twenty.

Joe Taylor: Yes, it was really.

Joe Taylor: A great reflection on the margin improvements, we're seeing so again sales leveraged contributes to those margin improvements. So they are obviously directly tied together so.

24 is maybe you can think about 25, what would that advertising as a percentage of sales.

Joe Taylor: Not only the ability to move the revenues up and get that incremental sales lever, but continuing to make some progress on.

Well.

Joe Taylor: Further modest margin expansion as we go into the rest of the year.

Let me answer the how we think about it and then I'll, let I'll, let Mike talk about the actual percentage that you are asking for John So.

Speaker Change: Okay I'll pass it on thanks.

Speaker Change: Okay.

Speaker Change: Your next question is coming from John <unk> with J P. Morgan.

Number one we are making a pretty big bet on the increase in advertising. So we did 20 incremental million last fiscal this year.

Speaker Change: Hi.

John: As you hear about the effectiveness of advertising and.

It's more than $50 million incremental on top of that so like.

John: I think I'm trying to be your CMO.

From my perspective, I feel like.

John: Why not significantly increase.

We've been moving very fast to reset of demand creation this business and.

John: Percentage of spend where you currently are I mean, if the industry.

It can be one is that the numbers are pretty significant.

John: It used to be those consider that you could get to $5 of sales for every additional dollar of advertising that's something that.

Number two it takes some time to build capability to do all these things right. So obviously, we had to rebuild our TV capability, we had to rebuild some of our insights capability now we're in the middle of rebuilding.

John: That you would want to do so I guess, how far are we do you think in terms of just kind of getting back to that margin level to where youre deciding is like hey, additional advertising brings additional profitable sales versus not I mean, if you were to completely clean slate.

Our CRM program to be.

Much more effective and efficient so these things take time, so even if we even if I said.

End game is to continue to move that higher in the next couple of fiscal years. It takes time to build capability to be able to effectively deploy those dollars.

Speaker Change: <unk> four is maybe you can think about 25, what would that advertising as a percentage of sales.

So far the team has done an excellent job George Felix and his team.

Speaker Change: Well.

Speaker Change: Let me answer the how we think about it and then I'll, let I'll, let Mike talk about the actual percentage that you are asking for John So.

Couldn't be more proud of them on how they continue to build our capabilities and I think we've done a great job with TV and now we're really focused on digital and I would expect that to continue to ramp up as we continue to build that capability. So does that answer. Your question. John is we are spending significantly.

Speaker Change: Number one we are making a pretty big bet on the increase in advertising. So we did 20 incremental million last fiscal this year.

More and investing more in the business.

It's more than $50 million incremental on top of that so like.

But we also have to continue to build capability in order to effectively deploy those dollars.

Mike: From my perspective, I feel like.

John It's Micah.

Speaker Change: We've been moving very fast to reset of demand creation this business and.

Just to back that up as we really we doubled our advertising as a percent of sales last year.

Speaker Change: It can be one is that the numbers are pretty significant.

That one five and this year, we're just at 3%. So that's getting close to pre COVID-19 level before we pulled back on that so the pieces are a little bit different like Kevin said that we're definitely going to continue to to look at that line and invest where it makes sense.

Speaker Change: Number two it takes some time to build capability to do all these things right. So obviously, we had to rebuild our TV capability, we had to rebuild some of our insights capability now we're in the middle of rebuilding.

Speaker Change: Our CRM program to be.

Kevin did I catch an illusion that that 25 kind of goes up as a percentage of sales again.

Speaker Change: Much more effective and efficient so these things take time, so even if we even if I said.

Over 24 in and I guess, just maybe like the Max limit I would have to go back and look from years ago. I don't think many casual diners have ever spent about 4% at least not materially more would that be kind of like the Max limit of spend that you would imagine the brand getting too yeah, I don't think we're close to that level.

Speaker Change: End game is to continue to move that higher in the next couple of fiscal years. It takes time to build capability to be able to effectively deploy those dollars.

Speaker Change: So far the team has done an excellent job George Felix and his team.

I haven't focused on a ceiling, we're just focused on making sure. The next dollar that we deploy has the return that we've seen in the previous dollars or better. So right now from the returns that we've been seeing in the traffic gains and then more importantly that the traffic gains are more sustainable given the experience improvements gives us confidence to continue to lean forward and invest so the answer would be yes.

Speaker Change: More and investing more in the business.

But we also have to continue to build capability in order to effectively deploy those dollars.

Mike: John It's Mike.

Speaker Change: Just to back that up as we doubled our advertising as a percent of sales last year.

Would expect us to invest more in 'twenty five and what the ceiling is I don't know I don't think its the number that you threw out there I think it's probably less than that but.

Mike: That one five and this year, we're just at 3%. So that's getting close to pre COVID-19 level before we pulled back on that so the pieces are a little bit different like Kevin said that we're definitely going to continue to to look at that line and invest where it makes sense.

We will continue to focus on are we getting the returns that we that we won from the deployed spin Okay, Alright, perfect and then in terms of whats actually brought in.

Well it wasn't a customer that was coming to chili's during COVID-19 or slightly after COVID-19, just not as often and was it a completely lapsed customer was it a new customer or did you I may have missed this do you have that level of intelligence in terms of how you actually bring into the door.

Mike: Kevin did I catch an illusion that that 25 kind of goes up as a percentage of sales again.

Speaker Change: Over 24 in and I guess, just maybe like the Max limit I would have to go back and look from years ago. I don't think many casual diners have ever spent about 4% at least not materially more would that be kind of like the Max limit of spend that you would imagine the brand getting too yeah, I don't think were close to that level.

Yes, we don't yet I mean, we have our data now token highs, which we talked about we're working on our last call.

Going to take another quarter to officially deploy that and they have been able to have better answers to what you just asked and we know in general.

Speaker Change: Not even focus on sealing were just focused on making sure. The next dollar that we deploy has the return that we've seen in the previous dollars or better. So right now from the returns that we've been seeing in the traffic gains and then more importantly that the traffic gains are more sustainable given the experience improvements gives us confidence to continue to lean forward and invest so the answer would be yes.

Generally a younger customers responding to.

To the advertising.

But we don't have the granularity that you just asked for like how long were they were lapsed and when was the last time they ever visited at Chili's. So hopefully we'll have more information on that as we continue to build our CRM capability.

Would expect us to invest more in 'twenty five and what the ceiling is I don't know I don't think its the number that you threw out there I think it's probably less than that but.

And then going forward, we'll just be building out those profiles more and more we have now 18 months of prior data Thats been token eyes, and then as we put that into the restaurants will be able to start building out the profiles of all these guests to be able to answer your question with a lot more granularity sounds good. Thank you.

Speaker Change: We will continue to focus on are we getting the returns that we that we won from the deployed spin Okay, Alright, perfect and then in terms of whats actually brought in.

Okay.

Your next question for today is coming from David Palmer with Evercore ISI.

Thanks, Good morning.

You talked about.

The menu shifts that you made with featuring wings in case it does more.

Speaker Change: Yes, we don't yet I mean, we have our data now token highs, which we talked about we're working on our last call.

And that caused some trade down and you know.

Some lower trade up from the three for me.

Speaker Change: Going to take another quarter to officially deploy that and they have been able to have better answers to what you just asked and we know in general.

Consumer.

I think you talked about a new menu launch today.

I'm curious what would that feature what sort of changes and are there any other adjustments you are contemplating for some of these consumer realities youre talking about.

Speaker Change: Generally a younger customers responding to.

Speaker Change: To the advertising.

Speaker Change: But we don't have the granularity that you just asked for like how long were they were lapsed and when was the last time they ever visited a chili's. So hopefully we will have more information on that as we continue to build our CRM capability.

Yes, So let me start with the menu merchandising changes and then I'll talk about how we're thinking about.

Adjusting to the kind of the.

Speaker Change: And then going forward, we'll just be building out those profiles more and more we have now 18 months of prior data Thats been token eyes, and then as we put that into the restaurants will be able to start building out the profiles of all these guests to be able to answer your question with a lot more granularity sounds good. Thank you.

Where the customers right now so from a menu standpoint, we're rolling back so we had really blown out.

The picturing a wings on the menu with the thought that we're going to bring the virtual brand into the Chili's and the thought there was we're going to drive more wing attachment to alcohol only.

Guests as well as drive trade up for those guests that are coming in for dinner for appetizer. So when you picture something.

The guests will order more of it right just that simple and that's exactly what happened. Unfortunately.

Many of those guests are trading down from entrees purchased either that incremental add onto a bar tab.

Or incremental trade up on an appetizer. So we've removed the pictures of wings off the menu, it's back to being line listed and.

And we expect that mix will come down on wings because of that move and that will reduce the amount of trade down that were seeing from entrees into wings.

We've done the same thing on <unk>. So the thought process. There was a case it is.

A very expensive appetizer, but it's a very cheap entre.

We were not listing it as an appetizer. So we had put it in the appetizers, we had pictured it and in fact, it drove more trade down in entre. So again remove that picturing. We've lined listed case. It is only in the <unk> section and we've completely removed from advertisers. So we believe those two moves will help reverse some of the mix.

Hertz that we've seen of the second thing that we're doing is we're getting more aggressive about merchandising at least in the feature card some of our more premium items. So what youll see if you go into a chili's today as a new feature card, which is basically a.

Pretty a full color gigantic insert that goes into the menu that drives and typically whatever we feature on that that will drive mix of it.

And so we're featuring our fajita trio, which is our highest price fajita offering the triple dip, which is by far our best appetizer from a PPA and a profit standpoint, and we're featuring the classic Sirloin and then the other side of the feature card. So those are all three significant tradeoffs for both dollar ring in profit and on the other side of the future Carbo, featuring all of our <unk>.

Premium Margarita so el Nino custom egos in Spicer readout, which all are at $10 or higher right now.

And that's been one of the things that really has helped us in mix over the last four quarters as we continue to have the $6 Margarita of the month for that price sensitive guest that they come in for that right, but we've been able to more than double our ultra premium Margarita mix. So I'm talking about margarita sold at $10 or above by focusing the menu merchandising on those.

So that's allowed us to keep our aggressive pricing at the six dollar level, but still continue to expand margins through expanding the high end of the barbell on premium. So that's the menu merchandising stuff that we're working on.

Our that working on that are being deployed as of as of yesterday.

Far as anything else that we're doing to respond to a more price sensitive guests that will continue to focus on three for me and the advertising. We are as I said in the prepared comments testing some new angles as well as bringing some news to three for me that Youll see in the <unk>.

Coming quarter. So we're excited about that the second thing that we're doing is we're making sure that we have the heroes at the bar, where we know that can drive trips in a price sensitive environment.

Really rounded out so previously we had three and $4.

Modelo, Negra and Bud Light's, we've added chain wide Coors light and.

And Miller Lite. So now we have the top four beers for happy hour.

A very attractive price point that we can still make money on but as attractive enough that's going to bring that guest in.

And we're going to continue to focus on how do we continue to push the envelope on value, but continue to expand margins. So I.

I hope that answers your question, but that is what we're focused on David in terms of the changing consumer.

Oh, that's awesome and just one follow up and that is you talked about sort of build on John's question about the increased advertising and keeping that going into fiscal 'twenty five.

Do you envision maybe funding that differently now that youre seeing this consumer reality that you're seeing do you still have the same sort of pricing power in mix that check driving capabilities through the menu.

If not.

That is slowing your diminishing in some way can you maybe click.

Click in with some of the other stuff you would had been contemplating in one point smart cooking grilles and other sort of.

Cost driving productivity driving stuff that might cost you on the capex, but that could get you some margin to fund what do you want to get done in the advertising and thanks.

Yes so.

Let me answer with you, how we're thinking about how to how to finance the advertising and build plans that we are confident we will continue to expand margins and then.

If you guys want to chime in with any kind of detail on that that's great. So.

We're going to continue to focus on simplification, we didn't talk about it in the prepared comments.

But we've got several initiatives initiatives that will be coming to market that will help us ease the load on labor as well as help us with some SKU productivity. So like you guys see a.

Big Cogs number and it looks like it's very deflationary right. Most of that is from commodities, but there's also some embedded simplification and those things that it's hard to tease out. So for example, what's coming forward as well.

We're eliminating our we have a smaller burgers SKU that we use at lunch, we do a double burger it's harder to execute for the teams. It's another SKU that we've got to manage.

Beef in the heart of the house, we're going to eliminate that and just go to our single Patty.

Is seven five ounces the net of it is.

It gives the guest actually a little bit more beef and that lunch Burger it actually cost us a penny less and then from a efficiency standpoint.

It's much easier to manage one SKU than all of these different skus. So that's an example, where we think the customer is going to get a better experience, but we're also going to.

Save a little bit of money, but most importantly make it easier and more efficient for the team members to execute we're also looking at <unk>.

Removing some other equipment.

In terms of slices that require a lot of cleaning and extra time and just go into a more consolidated onion skus. So there's probably about five other things that we're working on in that area that will have will help margins over time, maybe not as much as the deflationary environment that we're seeing but certainly things that will help.

In an environment, where things are a little tighter.

Other thing I would tell you is I think that barbell strategy, we're going to continue to lean in on it. So we are seeing time and time again.

Having opening price points that drive traffic, but then allowing the guest that comes in that doesn't really care about the opening price point to be able to trade up is working so for example, our CRISPR is launch you could still get.

An opening price point and CRISPR is that's incredibly attractive, but we are now transacting a decent portion of our CRISPR mix at over $16 with a six count. So that's an example, where we.

I think we tend to think of the consumer as one person and Theyre not really one person there is a price sensitive guests that we're winning with exceptional value and then there is a guest that comes in and they're going to get what they want and the end of the day. If you can deliver on consumer needs whether it is on a low price point or whether it's on.

Premium products are larger bundles youre going to win over time and I think that's what's happening with this barbell strategy.

And David the only thing I would add to that from.

Pricing standpoint is I don't think the story is totally over yet as it relates to price first there will be carryover some of the pricing actions. We've taken this year as you move.

Into the first part of F. 'twenty, five clearly youre going to price at much lower levels and we have priced in the past.

But I think we're getting to be.

More educated around how we price and have a more specific ability to price where that is available to us without having an impact on the traffic side of the equation. When we spent a lot of time.

And the.

Fall working with Deloitte consulting group on really.

Building the revenue growth management.

<unk> understanding of elasticity.

At a better level as part of that equation and we have a team now that is formed here.

To look.

On an ongoing basis at where those opportunities lie how you use the platforms and are in a better level, where the reach analogies and house price and opportunity can be applied at a restaurant level. So I think we're just going to be a lot smarter about it as we kind of move into F. 'twenty five and still have some benefit.

Higher levels of price relative to what we typically carried and that one and a half and it'll come way down and we will be back down into that first into the mid <unk>.

Single digits, and then start to move down towards that 2% to 3% as you move through 'twenty five but.

But we still have opportunity there and.

While maintaining price points.

Across that entire barbell that are very appealing to the gas. So so I think that story is still has another chapter two to go there, we'll just do it in a more.

At a lower level and a more specific basis.

Great. Thank you.

Yes.

Your next question is coming from Andrew <unk> with BMO.

Hey, good morning, Thanks for taking the question.

My first one in the prepared remarks, you spent a bunch of time on.

Kind of miniature managerial.

Turnover et cetera, and sentiment touched briefly on on the hourly side what else can you share in terms of what youre seeing from an hourly employee perspective, whether it's the improvement in turnover can you quantify that.

Other benefits youre seeing from an operational or kind of otherwise sentiment perspective would be would be great to hear.

Yes.

So manager, we feel amazing about and it continues to extend our lead versus the industry. We're at the very top tier of restaurants right. Now early we're still behind the industry. Although that gap is clearly starting to close like we're starting to see that line come down faster than the industry's line.

We're still about 12 points different.

Versus the industry. So there is opportunity.

The our vice President of operations recently got together actually.

Last week.

And talked about what are the more specific things that we can do to accelerate that improvements of some of its going to improve faster than the industry, just because that managerial level continues to be more and more stable, which is going to help with hourly turnover, but then some of it is what additional things that we need to do in order to and to improve that the total employee proposition Theres a couple.

Things one is we are going.

Position by position to understand what are the ones that are that are driving the highest turnover. So for example.

The front of house the number one driver of turnover is actually folks that don't make it out of training and so when we double click on why that is.

We've put a lot of virtual training in during Covid and the reality is the team members that come to work for us they want to get started either serving guests or or or.

Or whatever the role is and so we're moving more towards more side by side trading less virtual training, we think that more of our <unk>.

Or at least that come work for us.

With Chili's past that 30, 60, and 90 day, Mark because we're going to get them off to a faster start the second thing I think it's going to help with hourly is the continued tweaking of the labor model to make sure that each hourly employee understand specifically whats their areas of responsibility and so thats. The other big thing that we did with device presence of operator.

It was literally walk through everything that a team member experiences both in the front of house in the heart of House talk about what are the friction points for them and how do we get more clarity on what their roles and responsibilities are so we'll have more to share on that.

Coming quarters on specific initiatives, but I think where we have a pretty good bead. Unlike.

What are the opportunities and now we've got our leadership working on what those initiatives are that will accelerate beyond just stabilizing manager alternative which I think will continue to have a tailwind on hourly.

Great.

Helpful color and I wanted to also ask on.

Commodity inflation and particularly with.

Chicken prices, turning inflationary here kind of on an underlying basis I know that's been a big source.

Favorability for you guys. So how should we expect that to flow through the food basket and kind of what are your expectations for food inflation over the balance of the year, the puts and takes across the best basket chicken and otherwise.

Hi, Andrew its Mike.

So that's a great question.

We previously as we've talked about we were on that 45 day rolling with the market. We have recently locked in some poultry pricing. So we always expected poultry to be inflationary in the back half its actually more favorable still inflationary, but less inflationary than we originally anticipated. So that's actually been a good guy for us in the back half.

We've had a few other contracts and things dairy has been positive we have some positivity in the ground beef. So we actually have had some positive news on that front, we're still going to be slightly inflationary in the back half, but for the full year.

Now going to be slightly deflationary. So we made up some ground there in those markets.

Great. Thank you very much I'll pass it on.

Your next question is coming from Brian <unk> with Piper Sandler.

Hi, Thank you just a question on Mcdonald's Kevin can you talk what are the key priorities are for this business over the next.

The years, you've shared some aspirational targets on <unk> and margins, maybe what are some of the strategies the team will be focused on.

In order to progress there and then related what would you need to see to think some unit growth might make sense at some point.

Yes.

We're very bullish about.

We're marciano can go so Dominic <unk> has come into the business. He has been with us for about two months now he spent a ton of time in the field just understanding what our opportunities for the business and just getting to know the people and building trust.

With our senior restaurant leaders they are excited about what he's bringing to the table. So far so he sees a brand it could be much more elevated than where it is today.

Starting with improved service levels the foods amazing so how do we continue to update the food, but the.

Food is in a really good place how do we elevate the service levels and then how do we give guests.

Guests more of what they want from <unk> versus just.

Being the lowest pricing out there and so he is really challenging the team on.

What was marciano built on and how can we be that amazing brand again and I think they are excited they are calling about bringing the magic back in it.

It is literally preventing the organization right now so I think the things that you're going to see our number one theres going to be some simplification of things that we don't think out a ton of value. So that the brand can reinvest in service areas that are going to make a much bigger impact.

On both traffic and guest check number two I think you're going to see some new and exciting innovation come out of that team. The type of innovation that is <unk> and shareable with guests to help build traffic over time.

Then number three I think youre going to see with improved unit economics, I think youre going to see us starting.

To identify areas to start expanding the brand.

Its current footprint, but we don't really have news to share on that last part yet because we're so focused on improving the operation improving the service levels and bringing that new innovation into the business but.

Yes.

Next quarter I know, we're going to have some updates to give you on where we're headed based on the speed that that team is moving in.

I'm very excited about talking about the growth prospects for Marciano is in the future.

Okay. Thank you then just a clarification on pricing and Joe you spoke to some of the work Youre doing with consultants and your new capabilities.

I interpreted what you said is perhaps pricing would be above.

That 2% to 3% in the first half of fiscal 'twenty, five and then maybe down towards that two to three in the second half.

Understanding plans can change do we have that right is that kind of the current thinking for next year the early thinking.

Yes, without getting into the quarterly pacing of F. 'twenty five quite yet Brian I think youre thinking about it right again, you carry price obviously for a year some of the bigger labs, a pricing start to take place right early in F. 'twenty five.

So again I expect too and we're taking advantage of some opportunities all along we told you we would look at the pricing opportunities in the second half of this year.

Menu, we dropped yesterday included close to 2%.

The incremental price again low level menu to menu.

We're moving a menu drop forward a months and later part of the fiscal year, you get a little bit you've got a little benefit from that but it will probably carry a similar amount of pricing.

And then I think what you can try and see as you kind of go through future menu.

Drops is that 2% to 3% kind of target range not committing to that theres not I am not giving you.

Any kind of F. 'twenty five guidance, but you will see some higher levels of pricing.

As you move through roll offs in the first part of F. 'twenty five and then start to normalize that I would suspect down into that.

Kind of mid single lower single digit range as you move further into the year. So.

Again, I think that's still some some good opportunities there.

Thank you very much.

Your next question for today is coming from Alex Slagle with Jefferies.

Thanks, Good morning.

Any color on the margin impact on the <unk> related to the January weather hit and perhaps being more difficult to manage labor and other things with that volatility and I know, it's a big AD spend quarter also just curious if that makes it harder to hold this restaurant level margin flattish quarter over quarter or how youre thinking about that.

Yes, I can't give you a lot of detail again, I think theres some some opportunity there in the margin.

Year over year might be.

Be flattish to slightly up I would like to see that I don't have a lot of read through yet today's the last day of the period. The close will start moving through some of those specifics shout out to our operators as I watch kind of the progression of.

<unk>.

Expense management, they've done a great job of managing through the cycle is extremely difficult to manage through some of those kind of weather.

<unk> and they've done a good job in maintaining labor level levels on some of the.

The what they can control during the process at levels, you would hope to see them do so.

But don't have a clear read through and clearly its one period you got two more periods to go that will have.

Impact to.

To those margin levels too so.

It's just nice to kind of look out and see the Sun shining down here right now.

Great Yeah, and the cost of goods again, you kind of talked about it but sort of breaking records I mean is this.

Is this a level you think you can hold in fiscal 'twenty five or are there certain things about commodities and pricing in the merchandising work that would suggest the cost of goods sort of creeps.

Back a bit higher.

Next year.

Yes, and again it will all depend on.

The evolution of those commodity markets I would expect.

Commodity markets to get back probably into a more normal.

Pacing that typically means you see a little bit of inflation that you definitely expect as you kind of go in the fiscal year, but.

Obviously not.

Not a lot to share as to specifics on that but I think long term, we're expecting kind of more normalization of the commodity markets as we move forward from here.

Okay. Thank you.

Your next question is coming from Jeffrey Bernstein with Barclays.

Great. Thank you.

Two questions. The first one Kevin I think you've mentioned.

Alluded to a conservative more conservative consumer.

I think you got that from early signs with maybe the mix of three from me slipping a little bit.

Wondering what metrics do you watch from here to assess whether it's.

More of a conservative consumer slowdown.

I would respond.

It seem like we've seen in industry uptick in promotional activity.

I'm not sure if that's just the normal January post holiday or whether you see it as something more so just any thoughts on how you measure more consumer conservatism and thoughts on the competitive landscape.

Yes.

It's a good question Jeff.

One to answer because the data that we track is all mix do you guys probably see the same thing. So one hand, you see like low unemployment and continued wage growth.

We saw some pretty big upticks in consumer sentiment in December on the flip side, you see increase in borrowing and credit card balances pass due in.

A significant percentage of households are resuming paying on the student debt. So there's like all these mixed signals.

That would tell you it's going one way, but it's also going the other way in our own data. We also see mixed messages right. So we see healthy spending on a higher end items, we don't see a pullback in any of our consumer income demographics right, but on the flip side.

We're also seeing.

Improved responsiveness to TV ads that showcase really sharp value and that those customers that are coming in incrementally.

They are not buying as much alcohol or dessert. So what does it all mean, but we think it means is that there are different consumers. So we believe that those mixed messages mean, there are some consumers that are going to be more conservative and there are some consumers that are not really going to change their behaviors, one way or the other and so we've got to make sure that we are prepared and ready to attract both so far.

From the the consumer that is more price sensitive we got to make sure we have industry leading value. We have to continue to make sure that we improve our experience because of their pullback trips they're going to choose the.

Concepts to have a more consistent experience that they know they can count on.

And then we got to make sure that across the menu. There is areas that they can access. So for example, continuing to innovate on the Margarita of the month at $6 continuing to innovate on three for me starting at 10 99, making sure that guests are aware of those offers so that we can continue to win the traffic share game that we've been winning on the flip side, we've got to continue to.

Bring more premium items and more premium.

Food and beverage offerings. So that we can continue to balance that and continue to grow margins. So for example, this is a great example of this month, we launched the Spice Narita.

Which is a very premium.

Drink with SPL Unrip Azzato Grand Marnier Jalapeno, we priced at $10 right, but we also brought a new $6 Margarita right.

With a strong Eddie that has premium tequila at a premium market. So I think you're just going to see more of us innovating both on the high end.

And the low end because we've got to protect the guests its price sensitive, but we've also got to make sure. We have things that consumers want if they if they are there and they're not as price sensitive. So so I think we're going to continue I mean, it sounds very similar to what I've told you the last couple of quarters.

But at the end of the day it seems to be working we're growing traffic share. We're growing PPA ahead of the industry right and we're expanding margins and those would be the three metrics you'd look at to say is a barbell strategy working if theres. Some consumers that are a little more price sensitive.

Understood and then just my follow up.

Joe just recognizing the January weather issue I'm wondering if you could maybe share the exit rate in December the full fiscal second quarter for Chili's company operated within the 5% range, but just trying to get a sense for how trends flowed through the quarter again, making I don't know whether you want to share January specifics, but obviously, that's an anomaly but.

And looking forward I think you guys had previously said you expect mid single digit comps for the full year. So is that still reasonable and I think you did $5. Six is the first half January a little bit of an anomaly, but is that still a reasonable range for the remainder of the year. Thank you.

Sure.

We're still sticking with our mid single digit range for the year, that's where I want to again, you would've expected a little bit lower level of comp at the end of our quarter because of the big comp we had in October.

Comps are always going to fall or youre marketing at <unk>.

<unk> intent balls and Thats the way the quarter played out we also were lapping a pretty good December last year, so that probably had a little bit of so again everything is staying on track from a from a revenue growth standpoint in that mid single digit range is clearly what we're.

Feel we can accomplish as we kind of move through the rest of the year.

Got it but no quantification on the January ballpark, where that comp was settling out.

No not at this point.

Again.

I'm going to avoid period.

<unk> given you some pretty good data on that but it's a drag it's going to it's something we have to.

Try and make up as much as we can as we kind of move through the rest of the period, but.

Again, I think it's an anomaly not not.

Something you should be taking into trend consideration.

Absolutely. Thank you.

Your next question is coming from Christopher Corral.

RBC.

Hi, Thanks, and good morning, So maybe holding aside the weather impact how are you thinking about restaurant level margins here in the back half of the year and others are bunch.

A bunch of moving pieces here around the lapping of labor in R&M investments and now Youre past the lap of the very elevated commodity inflation that you saw in the first half of 'twenty. Three so curious how are you thinking about overall restaurant margins relative to the improvement that you've seen in the past couple of quarters.

Yeah again, our thinking continues to be that we can strengthen those margins again, taking whether out of consideration, which will have a drag on the margin in the third quarter.

We and particularly in the fourth quarter I believe we can continue to strengthen margins, you'll see that a little bit in the back half already or any ways from a volume standpoint, you get.

A little bit of seasonality tick up that helps with the.

The sales leverage, but as we can and continue to move forward with the.

The strategies that we spent a lot of time talking about today, we think that will have a margin benefit, particularly in the fourth quarter.

Okay got it and then Kevin you mentioned the again.

Thanks, Sue and Chris one thing.

We've talked about in the past as we thought we could increase our annual margin a little over 1% year over year.

Im more bullish on what we can do there I think we can move it up closer to that one.

One and a half ish range give or take up and that ran in that in that range.

Got it and Thats specific to the second half here for 2000 and that was the that was the full year. That's the annual for that's what we've told me about it and we got it yeah. Yeah got it got it that's helpful. Thank you.

And then Kevin you mentioned the guests to reporting a problem metric is at its lowest level. Since we began tracking it so thats of course encouraging.

But maybe can you expand a bit more on some of the other metrics around guest satisfaction I think you referenced improvement and intense return so anything really to help us just think about kind of sustainability of traffic improvement on the back of the investments that you've made.

Yes, I mean, these are leading indicators that we that we that makes that lead us to believe that we'll continue to see strength.

No Theres no exact beta correlation to this R squared correlation of this right. So.

But the measures that we look at so we collect just so you understand we collect with our pay at the table devices.

We issue a survey to our guests we get a ton back because a lot of them. After they pay it is just right. There on the table. So we get over 20 million surveys a year, where we asked several questions about their guest experience. So the measures that we look at from that data is server attentiveness food.

Food grade scores intent to return and then the.

The one that we look at on a daily basis as guest with a problem or we call <unk>.

And all of those just continue to make continue to make progress, which gives us a lot of <unk>.

Confidence that we'll continue to make.

Yes.

The overall experience I will say.

That is just about chili's, beating itself, which is great but.

We want to be the best in the industry and so when you look at external metrics. The good news is for US is there is a lot more upside for us on improving the experience at all of those metrics, whether they are food grade scores or consistency. So that's.

That's really what we've talked to our field teams about which is hey, we feel really great about the progress that we've made and it's very tangible I mean, you can feel it in the restaurants, you can see it in the data, but if we're candid about where we sit in the industry and where we want to be which is long term sustained results at the top echelon of casual dining restaurants, we have a ton more work to do and that's what we're focused on.

Okay, great. Thanks very much.

Your next question is coming from Jim Sanderson Northcoast research.

Hey, Thanks for the question I wanted to go back to the negative mix just to make sure I understood. Some of the feedback you've provided.

Can you give us a sense that the shift from quarter to quarter I think it was about a 400 basis point decline in mix was that primarily related to the menu issues you called out in the sense that you may have been able to hopefully remedy those with the menu changes or is a lot of that really related to just the conservatism of the consumer that just.

And in the quarter.

Hey, Tim I'm going to start out with that so the majority of that was really the lapse from prior year. So we had two big things that we did we had first we had lapped the happy hour program, where we did less discounting a year ago and then we lap the original restructure at the three for me. So that is the majority of the change.

And that would get you to about flat. So you could you can take 300 basis points from that the last 100 basis points that we reported Thats, what Kevin was talking about we think a lot of that was self inflicted and we can get some of that back.

Alright, so the idea that you can get to kind of a flattish <unk>.

This impact is still in process.

Yes, that's better.

Alright.

Another question on balance sheet real quick any feedback on how we should look at the impact on interest expense.

Once you refinance your second tranche of debt.

In October.

No I think we've kind of given you the guidance for the some thought processes on the year that's in F. 'twenty five.

Action.

I think youre, referring to the remaining bonds.

Mature in the fall of this year, So obviously 25 and that will get incorporated into the F. 'twenty five guidance, which will dependent deep be dependent upon.

Rate curve at that time, our intent is to refinance those under our existing revolving credit.

With all the capacity we have on that side of the equation. So more to come as you kind of refine that.

That view and we head into the next fiscal year.

And then we've talked about.

Year over year interest being about $10 million to $12 million year over year.

Increase.

Yes.

Alright, Thank you very much.

Thank you.

That is all the time, we have for questions today.

Thank you everyone for joining us and we look forward to talking to everyone on our next earnings call.

Everybody have a good day and thank you for your time.

Thank you. This concludes today's conference call you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Q2 2024 Brinker International Inc Earnings Call

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